IndianOil reports Rs 17,318 cr loss in Q4FY20 on inventory, demand issues

The company said due to Covid-19 and changes in the oil market scenario there was a significant fall in oil prices which led to a write down of Rs 6,855 crore in valuation of inventories below cost

The country’s largest fuel retailer Indian Oil Corporation on Wednesday reported a loss of Rs 17,318 crore for the March quarter (Q4) of financial year 2019-20 (FY20) on the back of inventory losses and low fuel demand because of the global Covid-19-induced slowdown. It had recorded a profit before tax of Rs 9,020 crore in the corresponding quarter in FY19.

The company said there was a significant fall in oil prices because of Covid-19 and changes in the oil market scenario, and this led to a write-down in valuation of inventories below cost of Rs 6,855.35 crore for the period. After taking a longer time, the write-down in valuation of inventories increased to Rs 11,304.64 crore over one year. In Q4FY20 foreign exchange loss stood at Rs 4,145.53 crore, against Rs 1,740.94 crore a year ago.

The longer period was taken as a one-time measure because of the unprecedented nationwide lockdown from March 25 and consequent decline in demand for petroleum products. The firm recorded an inventory loss of Rs 14,692 crore in Q4, as compared to a gain of Rs 1,787 crore a year ago, said IndianOil Chairman Sanjiv Singh said in a media presentation. Inventory loss is incurred when the price of crude oil, which is the raw material, falls further or a product lying with the company is priced lower than what it was at the time of processing. 

Its net loss stood at Rs 8,565.54 crore for the quarter, compared to profit of Rs 6,003.96 crore the previous year. In Q4FY20, the firm posted a negative $9.64 a barrel gross refining margin or what it earns in turning every barrel of crude oil into product, compared to $4.09 in the year-ago period. 

After excluding inventory losses, the GRM for Q4FY20 was $2.15. Average GRM for the whole of FY20 fell to $0.08 a barrel as compared to $5.41 a year earlier. 

The core GRM or the current price GRM for FY20 after offsetting inventory loss/gain stood at $2.64. Its gross sales of POL (petroleum, oil, and lubricants) was 81.94 million tonnes (mt), which was a tad lower than 82.90 mt in FY19, but more than IndianOil’s throughput. “We sold more than what we produce ourselves,” said Singh.

The IndianOil board also approved the proposal for seeking shareholders’ approval at the ensuing Annual General Meeting to increase the borrowing limits by Rs 55,000 crore to Rs 1,65,000 crore. IndianOil Director Sandeep Kumar Gupta said the borrowing limit was last increased 10 years ago, while stating that the firm’s current borrowing was Rs 1,04,000 crore and stabilised after it rose during the lockdown.

Singh said refineries were currently operating at 90 per cent capacity. They operated at 100.4 per cent in FY20. He said demand recovery was satisfactory, but going beyond 90 per cent of the pre-Covid level would be difficult for diesel and would depend on full recovery in other sectors, which was likely by year-end. 

While in case of diesel, absence of public transport was one big factor for low consumption, Singh said for jet fuel or ATF the lack of demand for business travel would continue. The company would, however, stick to its capital expenditure of Rs 26,000 crore for FY21.